Since it is Black-Friday, iStock thought we would have a little fun too since we aren't at the stores getting any of those super-deals. We are going to turn to the trusty stock screener to identify our favorite Retail Stock, how fitting, right?
The first thing we need to do is narrow our target list to Retail and Wholesale companies, which puts 390 potential candidates into the top of the funnel.
Retail can be a tough, hard-nosed competitive environment, so some of the most important things iStock is looking for include profits and margins. If it cost too much to get it out the door and management can't be efficient enough to turn a profit, we don't want it.
Surprisingly, or maybe not, the number of Retailers than earned more than zero cents per-shares in the trailing 12-months is just 220, eliminating 170 companies. Obviously, each of the 220 has positive net margins; we'll come back to margins as a tie-breaker if necessary.
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Immediate out-performance is always a goal. Who wants to buy a stock and sit on it forever while all the other equities race by you in the other lanes? There are not foolproof ways to ensure out-performance over any time-frame, but history suggests that companies with bullish EPS surprises for their most recent announcement do better than most during the next 90-day. The phenomenon, because efficient-market types can't explain it, is call post-earnings-drift.
Let's see how many of our 220 topped Wall Street's consensus by more than 10% for their last quarterly checkup – only 57 remain.
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iStock's not big on accounting tricks or reducing headcount as the main means for achieving profitability, we actually want our retailer to be selling more merchandise i.e. rising sales. Chop off 14 names as 43 increased the top-line during the last 12 months.
Now, we want our #1 pick to maintain momentum on the ! top and bottom lines. In order for that to happen, management has to do a decent job of managing inventory. Too much out-of-date stuff on the shelves usually translates into discounts and clearance sales; needless to say, not food for profit.
Of out 43, we want to see which ones turned their inventory over faster in the past 12 months than their five-year average. It's a sign of effective product selection. We are down to a dandy dozen.
So far, all of our work has been backwards looking. Of course, Wall Street doesn't care much about yesterday; investors are focused on tomorrow, which means the retailer that falls out of the funnel must continue growing EPS.
Analysts say a lucky seven are going to increase net-income by more than 10% in the next 12-month. Who knew that retail shopping is such hard work?
All of the seven names are solid names based on the overhead criteria, let's toss in Warren Buffet's rumored requirement of return-on-equity of at least 14% and see what come out of the other end... well, that didn't do too much by eliminating just one.
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Alright, how about Ken Fisher's price-to-sales ratio requirement of one or less? There are two more gone from our shrinking list.
It's time to pull out the tie-breaker. Of the remaining quartet, which has the highest operating margin? Answer - Dillard's, Inc. (NYSE:DDS).
Dillard's operates as a fashion apparel, cosmetics, and home furnishing retailer in the United States. The company's stores offer a selection of merchandise, including fashion apparel for women, men, and children; accessories; cosmetics; home furnishings; and other consumer goods. Its merchandise selections include brand merchandise, such as Antonio Melani, Gianni Bini, Roundtree & Yorke, and Daniel Cremieux.
As of May 10, 2013, the company operated 283 Dillard's locations and 18 clearance centers,! and an I! nternet store.
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